Ending Permanent Periodic Alimony: A Crisis for Enforcing Equitable Distribution Waiting to Happen
The Florida Legislature has taken steps in recent years to end permanent periodic alimony. If they are successful, this will have a major impact on enforcing equitable distribution on a wide array of assets. These include assets controlled by one spouse before the final judgment is entered and are subsequently “stolen” by that spouse after it is entered. They also include assets intentionally dissipated before filing the petition for divorce, which then cannot be dealt with by unequally distributing other assets, has been cured in the past by awarding permanently periodic alimony.[1]
The assets affected include a plethora of things awaiting distribution under the deferred distribution method. They include most retirement plans, executive compensation payments and perks, unvested nonretirement benefits, and compensation enriched by future work effort designed to pay bonuses, including but not limited to employer stock and stock options. Assets affected also include forgivable loans repaid with a bonus schedule that is automatically repaid in full at death or disability, equalization payments, and intellectual properties. In most instances these assets, when present in equitable distribution, represent the lion’s share of assets divided. Because they include most retirement benefits, few economic classes will be immune from the impact.
This article addresses appellate rulings that are part of the reason for the harmful effect and possible corrective measures that the legislature might consider passing into law that cannot work under our current state constitution. It will show that some of these matters are long overdue for our Supreme Court to address.
Problems of Enforcement
The enforcement problems can begin when the final judgment is entered. Property awarded is considered distributed and is enforceable only with respect to individual rights arising from the final judgment.[2] This means if that asset or its proceeds are no longer available, the court no longer retains jurisdiction to enforce that award against other marital property.[3] Thus, one issue ripe for consideration by the Florida Supreme Court is whether certain appellate rulings conflicting with the majority of sister state rulings that came to an opposite conclusion on whether the proceeds of the assets are no longer available are correct as matter of law. This will be dealt with when we address the faulty reasoning the First DCA employed in its ruling in Board of Trustees v. Vizcaino, 635 So. 2d 1012 (Fla. 1st DCA 1994), the refusal of other DCAs to rule otherwise,[4] and the issues the Fifth DCA raised in Langford v. Langford, 833 So. 2d 230 (Fla. 5th DCA 2002), certifying its ruling as a matter of great public importance to the Florida Supreme Court. The holding in Vizcaino cannot be cured simply by the Florida Legislature drafting a state statute for a qualified domestic relations order because that statute cannot do more than require municipal and other state retirement benefits to be enforced as property with an income deduction order. Anything else increases plan cost not presently funded, and the bill cannot require municipalities to increase plan cost not previously approved by city council. This would violate Fla. Const. art. X, §14, by increasing costs that have not been funded. Such a statute will do nothing to cure the underlying cause where it traces back to whether the proceeds are available as cash (to be discussed later in the article).
• Fraudulent Conveyance to Jointly Titled Real Estate — If the proceeds of any affected awarded asset are deposited to joint or tenants by the entireties property after the final judgment is entered, the only way it can be secured is by civilly piercing through that protected status by invalidating it. This requires proving fraud by showing the other spouse committed a willful fraudulent conveyance of property. After that is done, the property must be partitioned, and unless it can be shown that the other spouse had knowledge of and actively participated in the fraud, partitioning will release only half of the asset because the new spouse owns the other half once joint titling takes place. If the value of the “stolen” property exceeds that half, recovery is limited by half the proceeds on the sale. In addition, a successful outcome often requires litigating in more than one court. Then, as oftentimes is the case, the property is outside Florida, this requires litigating the matter in two separate states, which involves registration of that judgment and adjudication of the fraud. This can be done, but is an expensive undertaking.[5] A foreign court may need to be called upon to construe Florida law.
• Enforcement in a Foreign Country — A spouse who liquidates some assets and relocates with the remaining assets to a foreign country may be subject to enforcement if that country is part of the Hague Convention.[6] That involves a great deal of expense because a lawyer knowledgeable about Hague located locally must be employed along with a lawyer in the country where the property is located for a coordinated effort. If the person resides in a country not subject to Hague, alimony can be used to get access to pension benefits not awarded with a qualified domestic relations order (QDRO) or an income deduction order (IDO), as applicable.[7] If none, there are always Social Security benefits that can be garnished, but only for need.[8] But they are only available as a source to pay support.[9] If permanent alimony ends, recovery is limited to the term limit on alimony.
• Role Permanent Alimony Plays — Permanent alimony affords some relief because temporary awards can be made permanent when this occurs.[10] Likewise, a court may refuse to consider a petition to modify a final judgment on support at retirement or when there is less income by finding that the substantial change of circumstances was self-inflicted,[11] ruling that the payor spouse voluntary divested himself or herself of assets, which if not fraudulently conveyed outside the reach of the court could have been used to demonstrate an ability to pay alimony.[12] Alimony awards are enforceable out-of-state making enforcement more realistic.[13] The roadblocks to enforcing equitable distribution described here would not be limited to tenants by the entireties property if permanent alimony were to end. They include any property over which the guilty spouse lacks control, such as many trust instruments in which he or she has a beneficiary interest. It also includes all property not spent or otherwise destroyed requiring enforcement by ordering the spouse to retitle the asset when the only means of enforcement is with contempt and that spouse resides outside Florida’s reach. Alimony can be enforced out-of-state under the Uniform Reciprocal Enforcement of Support Act (URESA) replaced by UIFSA[14] of 1992 adopted by all 50 states.[15] More importantly, it can be enforced against Social Security payments and all retirement plans (including the spouse’s awarded interest as property) overcoming DeSantis v. DeSantis, 714 So. 2d 637 (Fla. 4th DCA 1998), and any other rulings addressing enforcing a property interest using a retirement plan.
• Enforcing Most Retirement Plans — Retirement plans fall into a number of different categories, and each must be separately addressed in order to understand the different enforcement problems associated with each classification. They include ERISA-defined benefit plans, which have different challenges depending on whether they meet I.R.C. §401(a) conditions and are, therefore, qualified plans. They affect local government plans seeking plan qualification status a bit differently, because not all of the requirements need be followed by governmental plans seeking qualification, including exemption from offering QDRO enforcement.
Separate categories exist and breakdown almost identically for all defined contribution plans, with the exception of many governmental defined contribution plans, because they require certain IRS protection on asset accumulations, which is the reason why they sought qualification in the first place. That means that while they are exempt from offering a 29 U.S.C. §1056(d)(3) QDRO under an ERISA requirement, if they require a trust that relies on 29 U.S.C. §1056(d)(1) protection to individual account balances, they must, nonetheless, provide an I.R.C. §401(a) trust that requires QDRO access as part of the requirement for qualification. Therefore, different enforcement problems exist for local government defined contribution plans than local government defined benefit plans, apart from the basic problems for enforcing all retirement benefit awards. Each will be identified.
Exemption from statutory QDRO access does not mean that the non-assignment clause found in all retirement plans prevents assignment to spouses in matrimonial actions as the Vizcaino line of cases concluded.[16] They can be assigned because the purpose of such benefits was established before divorce became so commonplace an occurrence, and it was added to the retirement plan to protect retirement for the intact family unit, which included women and children.[17] The courts and most experts generally do not understand the distinction between QDRO enforcement that grants rights not covered by the basic plan, and involves substantial extra cost by adding underwriting risk the basic plan doesn’t face, and a simple assignment. A simple assignment only provides access to payments as made. Nor do they understand that the nonassignment clause only prevents actual creditors from seizing the proceeds inside the trust, but after that payment is made, that protection is lost (unless it finds its way inside another protected asset, such as a qualified IRA).[18]
Enforcement and Valuations
The problem of enforcement with any retirement plan begins when attorneys fail to do valuations determining basic things, such as the dollar amount of the award, before the final judgment is entered. Even if perfectly bifurcated in the final judgment by fully retaining jurisdiction to determine said amounts, the information to do this won’t always be available, and when it is, often requires subpoena power. The valuation can be complex depending on a host of factors that haven’t yet come into play, and there may be no appetite for the client to engage in legal and discovery expense years later. The other spouse is forced to revisit how much that spouse didn’t want to share his or her retirement plan benefits in the first place and is eager to defend against what has to be shared. This easily becomes a disputed contest making enforcement of the final judgment both expensive and very difficult to accomplish.
Traditional Pensions and Other Defined Benefit Plans
• Ancillary Benefits — Ancillary benefits include subsidies that exist in many different forms (some marital property and some not), survivor benefits payable to one beneficiary and others like a period certain or refund premium feature, which may or may not be payable to only one spouse, DROP[19] payments, and minimum guarantees, such as a floor benefit feature. These are not divisible with a QDRO but represent value to either the participant or beneficiary spouse depending on the feature. Therefore, the QDRO cannot divide all benefits and requires adjustments outside of it, and few lawyers appreciate this. A reservation of jurisdiction will not cure a 50% division that does not make allowances for a benefit feature that is marital property, but by design is paid only to one spouse. If there are cash benefits that accumulate, as in DROP, failure to account for those allowances exacerbates the unequal division halving the payments that a QDRO provides. This is because the DROP payment is directly related to the amount of pension payment that the other spouse is entitled to share, and if unadjusted because no valuation was done, only skews the unequal division that much more because DROP is involved.
• When the Employee Outlives the Spouse — When survivor benefits are not in play and pension payments are divided with a QDRO and the payment is shared over the employee’s lifetime, half the payments cannot be achieved because all plan administrators require that the assigned share revert to the plan participant upon the death of the beneficiary spouse. The courts seldom care because the spouse is not alive and doesn’t need it. Property divisions are not based on need but rights. When health issues arise, division by QDRO often results in one spouse receiving nearly all of the benefit, and which spouse receives the windfall depends on facts yet to be determined.
Other Retirement Plans
These issues apply equally to defined contribution plans because family law brings with it so many operating principals that can apply to retirement plans. As one example, because the trust owns the assets, loans distribute property that involve marital and non-marital contributions, the percentage of split property depending on the extent of marital contribution when the loan is made. They are almost always repaid with automatic employee deductions, which are marital wages and, therefore, marital property. The process of repayment involves transmutation principles changing nonmarital property into marital property that occurs outside the trust. Thus, while the assets are exempt from transmutation while they sit inside the trust, that doesn’t apply once the assets commingle outside the trust. Attorneys understand this when nonmarital funds are deposited to a marital account. But they give no thought to this when loan proceeds outside the trust instrument are repaid with marital funds.
A few loans can easily change a one-third marital classification based on contributions into a two-thirds marital classification based on the nonmarital portion of the loan property transmuting into marital property when it is repaid. When such benefits involving a nonmarital portion are divided it is absolutely mind boggling when that half hasn’t been determined and is left for the plan administrator to do, which will never happen with defined contribution plans, even when loans are not in issue. In many instances, leaving valuation issues as post-dissolution tasks creates an environment in which assets are liquidated or for theft or dissipation to occur.
If permanent periodic alimony ends, retirement plans will have many enforcement issues that occur after the final judgment is entered. As previously mentioned, this is the result when valuations weren’t performed, identifying which benefits can be divided inside a QDRO, which benefits cannot, and when offsets need be enforced at the same time the QDRO pays the benefit. It also occurs because attorneys do not understand that they divide the benefits when the final judgment is entered, not when the QDRO enforcing the final judgment is entered. Thus, when attorneys who do understand benefits enter final judgments without professional assistance from true benefit professionals, they can unknowingly create a host of enforcement problems, including unclear divisions that are contested later when enforcement is sought. The authors also believe that the faulty Vizcaino reasoning of the First DCA bled into other enforcement caselaw involving other assets, compounding the problem.
• The Vizcaino Problem — The Board of Pension Trustees v. Vizcaino, 635 So. 2d 1012 (Fla. 1st DCA 1994), dealt with the city of Jacksonville retirement plan, sponsored by a government entity, exempted from a QDRO under 29 U.S.C. §1056(d)(1). The former wife sought to enforce her interest with a QDRO covered by ERISA 206(d)(3) and in the alternative, if she could not, under an assignment with an IDO under Florida’s income deduction statute. The court first concluded correctly that government entities were exempt under the ERISA nonassignment clause, and only those subject to it could avail themselves of a 29 U.S.C. §1056(d)(3) QDRO. Then it ruled that an IDO cannot be used to enforce the property awarded, finding the spouse was now a creditor prevented from getting an assignment, because the state statute requiring nonassignment to creditors prevented it. The court came to that conclusion because the Florida Supreme Court concluded in Alvarez v. Board of Trustees, 580 So. 2d 151 (Fla. 1991), that the IDO statute authorizes its use to collect alimony with an IDO and may be used to collect alimony from the city of Tampa pension plan. Vizcaino concluded that its failure to mention that it equally applied to a property division yielded the result that the city nonassignment clause applied to spouses awarded a property interest, and not because that was the narrow issue decided by Alvarez.
It has already been discussed that the nonassignment clause was added to retirement plans to protect women and children from creditors and not for the purpose of depriving a spouse from sharing benefits, especially after state law made that spouse an owner in one-half the benefit. In addition, the nonassignment clause in the city pension plan was established in 1937, 51 years before Florida’s equitable distribution was created, and, therefore, had nothing to do with spouses enforcing a property right given to them under F.S. §61.075(5). How could the beneficiary spouse be a creditor when that spouse is an owner of property to which he or she seeks enforcement once the final judgment is entered?
How the Vizcaino Reasoning Affects Enforcement of Other Assets
The key point missed by the line of cases that rely on Vizcaino is that the employee does not own a retirement plan asset unless the asset is an individually titled insured annuity. The trust owns all retirement plan assets, and the plan sponsor(s) own(s) the trust. The plan sponsor is the employer providing benefits, or with union plans, the plan sponsors are the class of employers (referred to as multiple-employer plans) paying benefits. The employee doesn’t own the asset but only has rights to benefits from the trust, which are always paid in cash. That makes all plan benefits cash benefits. This cannot be over emphasized because only the owner of the trust has the capacity to change or terminate the trust.
As money is fungible, all cash benefits are indistinguishable from each other. After the final judgment is entered and a pension award or other property right passes to individual property rights, this does not magically transform the property owner into a debt collector because they already own the cash payments under the same state law under which they seek to enforce it.
The other thing the caselaw does not consider is that these cash payments, once made, can be assigned by creditors seeking to collect a debt, because the nonassignment clause only attaches to the payment while it sits in the trust owned by the employer.[20] Therefore, there is nothing that distinguishes the cash payment from other cash, making the cash proceeds the actual asset the employee owns. A court can enforce equitable distribution by entering an order forcing payment of the cash proceeds. Therefore, all cash-based property should be enforceable with a QDRO, which only accesses cash, because the only time the concept of a creditor comes up is with the faulty reasoning employed by Vizcaino, and the overwhelming majority of sister state rulings determined the reasoning employed by Vizcaino is wrong.[21] This is why we believe rulings like Vizcaino, involving a municipal retirement plan and DeSantis, refusing to enforce an equalization payment with a QDRO distributing and assigning a like amount of cash, are incorrect. But until the Vizcaino and the DeSantis line of cases are reversed by our Supreme Court by recognizing that spouses awarded property are not creditors, the appellate rulings tie the hands of trial courts enforcing in-kind cash payments, and the only way to enforce in-kind cash and other assets is with permanent periodic alimony.
Conclusion
As equitable distribution cannot be enforced with contempt, and alimony can, it is plain to see that it will be nearly impossible to enforce a stream of payments produced by intellectual properties, or any other property that is distributed over years, because each separate payment or distribution must be enforced with contempt as it occurs.[22] This is further complicated by the caselaw that creates distinct different asset classifications for different cash and in-kind cash payments, making it easy for the spouse who does not want to share what was promised or awarded. Alimony is pliable because it is subject to modification. A term award of alimony can be converted to permanent alimony when need is increased because the spouse in need has not been paid the property awarded in equitable distribution. But this will not be possible when permanent alimony is no longer available.
[1] See Buoniconti v. Buoniconti, 36 So. 3d 154 (Fla. 2d DCA 2010).
[2] McAvoy v. McAvoy, 662 So. 2d 744, 745 (Fla. 5th DCA 1995).
[3] Id.
[4] Langford v. Langford, 833 So. 2d 230 (Fla. 5th DCA 2002); Motil v. Motil, 771 So. 2d 1251 (Fla. 2d DCA 2000); Silversmith v. Silversmith, 797 So. 2d 653 (Fla. 3d DCA 2001).
[5] The court has subject-matter jurisdiction and personal jurisdiction over the spouse that engaged in the fraudulent conveyance of property. It can order him to convey back that one-half interest to the former wife. That order can be enforced out-of-state, requiring the property be partitioned. Once that is done, the court has the ability to rule that the proceeds of that spouse’s half can be used to establish ability to pay more alimony under Bowen v. Bowen, 471 So. 2d 1274 (Fla. 1985), if the court finds that the conveyance to divest himself or herself of assets was willful.
[6] Eos Transport Inc. v. Agri-Source Fuels, LLC, Case No. 1D09-4300 (Fla. 1st DCA 2010).
[7] 29 U.S.C. §1056(d)(3)(B)(ii)(I).
[8] 42 U.S.C. §659.
[9] Id.
[10] Pullo v. Pullo, 926 So. 2d 428 (Fla. 1st DCA 2006) (en banc); see also Perry v. Perry, 448 So. 2d 588 (Fla. 1st DCA 1984), and Barlow v. Barlow, 562 So. 2d 425, 426 (Fla. 2d DCA 1990).
[11] Hammesfahr v. Hammesfahr, 104 So. 3d 1129, 1130 (Fla. 2d DCA 2012), citing Thomas v. Thomas, 589 So. 2d 944, 947 (Fla. 1st DCA 1991).
[12] Id.
[13] See the Uniform Reciprocal Enforcement of Support Act replaced by the Uniform Interstate Support Act of 1992; Beck v. Winegeart, 471 SW 422 (Tx. App. Ct. 1972); Smith v. Smith, 281 P.2d 274 (Cal. 4th DCA 1955); Dansby v. Dansby, 149 S.E.2d 252 (Ga. 1966).
[14] Refers to the Uniform Interstate Family Support Act.
[15] See Joseph W. Booth, A Practical Guide to UIFSA, Family Advocate Magazine 39:4 (American Bar Association, Spring 2017).
[16] See Majauskas v. Majauskas, 463 N.E.2d 15, 21-22 (N.Y. 1984) (citing Monck v. Monck, 184 App. Div. 656; Zwingmann v. Zwingmann, 150 App. Div. 358; Matter of Spadaro v. New York City Police Dept. Pension Serv., 115 Misc. 2d 494; American Tel. & Tel. Co. v. Merry, 592 F.2d 118).
[17] Id.
[18] See Guidry v. Sheet Metal Workers Nat. Pen. Fund, 39 F.3d 1078, 1080 (10th Cir. (Colo.) 1994).
[19] This refers to the deferred retirement option program, a feature common to municipal pension plans. To be eligible, the employee must reach an age and/or service requirement where that person could retire immediately with an unreduced pension. Eligibility also requires making an irrevocable election to retire within a period of years, such as three or more years, and the worker must make an irrevocable election on the form of benefit under which it’s paid. The employee enters the program and receives the payment that would be made with an actual retirement, but while in DROP, it is paid to a DROP account that accumulates with interest. The employee pulls down a full salary while in DROP.
[20] Guidry, 39 F.3d at 1078.
[21] See Majauskas, 463 N.E.2d at 15; In re: the Marriage of Koelsch, 713 P.2d 1245 (Ariz. App. 1984); Cleveland v. Board of Trustees, 550 A.2d 1287 (N.J. App. 1988); Irving Firemen Relief v. Sears, 803 S.W. 2d 747 (Tx. 5th Dist. 1990); Early v. Early, 604 N.E. 2d 17 (Mass. 1992); Smithberg v. The Illinois Municipal Retirement Fund, 735 So. 2d 560 (Ill. 2000); Foley v. Foley, 1997 Conn. Super Lexis 2948 (Conn. Sup. Ct. 1997); Prince George’s County Police Pension Plan v. Harmen, 584 A.2d 702 (Md. App. Ct. 1991); Furia v. Furia, 638 A.2d 548 (R.I. 1994); Lindner v. Lindner, 358 N.W. 2d 376 (Mich. App. Ct. 1984); Barbee v. Barbee, 1991 Va. Cir. Lexis 128 (Va. Cir. 1991); Oler v. Oler, 451 N.W. 9 (Iowa App. Ct. 1991); Faus v. Faus, 319 N.W.2d 408 (Minn. 1982); Young v. Young, 488 A.2d 264 (Pa. 1985); Fowler v. Fowler, 362 A.2d 204 (N.H. 1976); Chatelain v. Chatelain, 518 So. 2d 505 (La. 1988); Rice v. Rice, 762 P.2d 925 (OK 1988); Custer v. Custer, 776 S.W. 2d 92 (Tenn. App. Ct. 1988); and Sedbrook v. Sedbrook, 827 P.2d 1222 (Kan. App. Ct. 1992).
[22] Langford, 833 So. 2d at 230.
Jerry Reiss is a federally licensed pension actuary. He has written over 40 articles dealing with multiple disciplines, 13 published in The Florida Bar Journal.
Marc H. Brawer was a fellow of the American Academy of Matrimonial Lawyers for 37 years and board certified in marital and family law for 25 years. A Florida Bar member for more than 40 years, and a New York Bar member for more than 49 years, he currently concentrates on strategic consulting.
This column is submitted on behalf of the Family Law Section, Amy C. Hamlin, chair, and Anastasia Garcia, editor.
